(Yicai Global) Aug. 5 -- Wuxi Communications Industry Group is to acquire regional budget carrier Ruili Airlines in Southwest China, Wuxi Communications Industry announced yesterday.

Wuxi Communications Industry reached an equity transfer framework agreement with Yunnan Jingcheng Group, the main shareholder of Ruili Airlines, it stated in its press release, which omitted to mention the specific value of the deal.

Ruili Airlines started flights in May 2014. It operated 20 aircraft and 74 routes as of the end of June, and its route network spanned 43 domestic and overseas cities. The company was reportedly in financial straits and salary arrears this year, along with many other small and medium-sized Chinese airlines, which have come under high cash flow pressure as the Covid-19 pandemic has clipped their wings.

Jingcheng, which also plies the mining, construction, real estate and hospitality businesses in southwest China, holds a 70 percent stake in Ruili Airlines and Dong Lecheng its chairman owns 30 percent. Wuxi Communications Industry is wholly owned by the city government of Wuxi, which is near Shanghai, and its investments include buses, subways, highways and airports.

Up for Grabs

Jingcheng hopes to sell its controlling right and many companies have already conducted due diligence investigations with a view to bagging Ruili Airlines, the source told Yicai Global.

Since only a framework agreement has been inked at this time, whether Ruili Airlines will move its main base from Kunming in Yunnan province to Wuxi in the future is still up in the air.

The cash flow of small and medium-sized airlines is facing a more severe test during the pandemic, civil aviation industry insider Lin Zhijie told Yicai Global, adding more airlines may actively or passively participate in this round of mergers and acquisitions if the pestilence holds.

Having a local airline is of special significance for Wuxi, as a national transport hub city, to accelerate its development as an aviation hub and achieve high-quality development of the hub economy, Wuxi Communications Industry stated.

Wuxi has been keen on getting hold of a local airline for a long time. Wuxi Communications Industry ran a due diligence investigation last year of Hong Kong Airlines, which was in financial difficulties, but the two parties ultimately did not reach agreement.

Editor: Ben Armour